World View & Market Commentary. Forest first; Trees second. Focused on Real & Knowable facts that filter through the "experts" fluff and media hyperbole. Where we've been, what the future may hold and developing a better way forward.

Thursday, June 25, 2009

First post from the new house... just skimmed thurday's market action, not up to speed enough yet to offer an opinion and my charting computer is not back online yet. Still have several days of organizing to do to get caught up, hope to be back with everyone fully by the end of this weekend.

Great thread without me, really appreciate the market updates and input. Thanks!

Have a great Friday and weekend, once I get the house and my office organized I'LL BE BACK!

Wednesday, June 24, 2009

I am in the process of moving and will start a market thread for Thursday and one again on Friday, but will leave it up to you to update one another with what's happening in the economy and markets. Thanks for sharing your input and knowledge!

By Monday or sooner I'll be back at it again, someone has to keep the pressure on!

Equity futures are higher this morning in front of the FOMC announcement with the /ES reaching the 900 level, just beneath the 50 and 200dma:

Monday’s big down day was a 93% down volume day, the second 90%+ day inside of a week. That is usually a marker of a powerful bear market, but it’s also an indication that the market needs a little rest. But the back and forth motion yesterday caused another small change in the McClelland Oscillator and thus we can expect a large change in price most likely today or tomorrow – direction is unknown from that very reliable indicator.

With the FOMC today, I was completely neutral at yesterday’s close and do not intend to play with the criminals today unless the FOMC presents a good entry opportunity which it may.

I believe that this morning’s bounce will make wave 2 of 3 down. If my working count is correct, then 3 of 3 should follow sometime in the next few days.

The short term stochastics still have room for more upside here. The 901 SPX area currently has both the 50 and 200dma in that area, so it may offer up a little resistance, but I will not be surprised if it is thrown over – in fact, that area as I type has just turned away the futures advancement.

The economic data produced more ammunition for the greenshoots crowd… The MBA Purchase Applications Index came in higher for last week with the index rising from 261 to 280. Here’s Econoday’s report:

HighlightsThe June 19 week was a good one for purchase applications which jumped 7 percent to 280.3, a still depressed level but a rare, solid improvement for the index. The refinancing index also rose, up 6 percent to 2,116.3. The applications activity is tied to a turn back down for mortgage rates. Thirty-year fixed mortgages averaged 5.44 percent, down 6 basis points in the week. Home sales data in general have been firming the last couple of months, raising talk that the housing sector has finally hit bottom. New home sales for May will be posted at 10:00 ET.

The week prior, if you remember, had fallen off the proverbial cliff due to rising interest rates. This rise is not at all surprising giving the breather in rates, the seasonality, and the greenshoot “spirits.”

Durable goods orders also rose month over month, giving the on air heads something to flap their lips about. Of course they are likely not to mention the year over year figures which are down a mind numbing 23.3%! Hey, we just learned that Japanese exports fell again and are now down more than 40% year over year! Oh yeah, greenshoots galore!But Econoday and others have to put their best spin on it, how else will they garner their sponsor’s money?

HighlightsNew factory orders for durables in May came in unexpectedly strong – even after discounting transportation. Durable goods orders increased 1.8 percent in May, following a rebound also of 1.8 percent drop in April. The boost in April initially had been estimated to be 1.7 percent. The May gain came in well above the market forecast for a 0.5 percent decline. Excluding the transportation component, new durables orders posted a 1.1 percent boost after rising 0.4 percent the month before.

The rebound in new orders was widespread but was led by machinery, up 7.7 percent, and transportation, up 3.6 percent. Also making gains were primary metals, and computers & electronics. Declines were seen in fabricated metals, communication equipment, electrical equipment, and "other."

Another sign of optimism was that capital goods orders rebounded. Order for nondefense capital goods jumped 10.0 percent in May after a 2.9 percent dip the month before. Even excluding aircraft, nondefense capital goods orders rose 4.8 percent after a 2.9 percent drop in April

Year-on-year, overall new orders for durable goods improved slightly to down 23.3 percent in May from down 24.5 percent the previous month. Excluding transportation, new durables orders rose to down 22.4 percent from down 23.6 percent in April.

The May report on durables orders showed broad-based strength for new orders. While the gain in new orders will take a little time to impact production, the latest numbers add to the argument that the recession's bottom is near. This still does not change the likely fact that the recovery will be sluggish. Nonetheless, equities should like today's numbers. Treasury yields firmed on the news.

New home sales come out at 10 Eastern, the FOMC announcement at 2:15 Eastern (11:15 Pacific), and of course there are bond auctions galore today and tomorrow to finance our “Fed’s” folly.

ADMINISTRATIVE NOTE: Today I get serious about my move tomorrow. I’ll only be with you online off and on until about the FOMC announcement and then I begin disconnecting my computers and packing up my office. Moving, unpacking and arranging the new house, and taking care of the current house will take me out of the blog world through the weekend. Before I unplug I’ll post a market thread for tomorrow and once again appreciate your patience with me as I literally get my house in order!

Hey, make sure you follow along with Point, Seth, Maize, Frank, Glass (where you been?), Joe, Nola, Comrade Wanna-be and others… they’ve been on a roll lately and especially Point’s red hot reports and Seth’s laser beam NASA moonbat calls, those guys are on FIRE!

Tuesday, June 23, 2009

Futures are up slightly this morning with not much overnight action in the Dow or S&P futures:

The overnight action was in the dollar which rolled over and plummeted giving up almost all of yesterday’s gains:

This is an interesting relationship as I’ve been saying, the next round of deleveraging will look different than the last. I believe that we are more likely to see both the dollar and bond market not strengthen as they did last fall. One of the Fed officials was out trying to make it sound as if the Fed had raised nearly enough money (80%) to finance our debts for the rest of the year – but of course they would continue to “gradually increase the size of their offerings…” uh, huh ( Treasury has raised 80% of funds needed for '09). Here’s a daily chart of the dollar…

Watch that little trendline… it will be interesting to see if it breaks and goes lower or if it finds its footing and rises.

The ICSC store sales came in with no change week to week, but was down .9% yoy. Here’s the world according to Econoday:

HighlightsRetail sales continue to be weak in June, according to ICSC-Goldman's same-store sales tally that is unchanged in the June 20 week for a very weak year-on-year decline of 0.9 percent. The report cites recessionary conditions and wet weather for the trouble. It does note that the approach of warm weather could give the month a late lift. Excluding Wal-Mart which no longer issues monthly data, the report sees a very steep May-to-June decline of 5.0 percent. Redbook, up at 8:55 ET, has also been warning of a very steep month-to-month decline.

And decline the Redbook did, falling 4.2% yoy:

HighlightsJune retail sales are very weak, according to early reports including Redbook's tally that shows a 4.2 percent year-on-year decline in the June 20 week vs. the year-ago week. Redbook estimates the May-to-June drop at a massive 4.4 percent. But both Redbook and ICSC-Goldman do offer a note of optimism, saying sales at month-end could pick up significantly if warm weather forecasts prove true.

Got to throw the optimistic line in there for those participating in Economic Mass Psychosis.

Existing Home Sales rose 2.9% in April month over month but was down 3.6% yoy which is an increase from down 3.5% the month prior. Inventory of existing homes rose as well, showing no evidence that a rebound is imminent, of course.

Existing home sales rebounded 2.9 percent in April, after slipping 3.4 percent the month before. The April sales pace of 4.680 million units annualized was nearly flat at minus 3.5 percent. Supply on the market was a negative in the report, rising to 10.2 months at the current sales rate compared to 9.6 months in March. Looking ahead, pending home sales have risen three consecutive months, including a 6.7 percent boost in April. Pending home sales tend to lead existing home sales by one or two months. The first-time home buyer tax credit may be providing some lift to sales.

Also keep in mind that tomorrow is FOMC announcement day. That’s a huge wildcard… who knows what GAMES the Fed will play.

What I do know is that it appears that we made wave 1 down of 3 down yesterday. At some point in here we should see a wave 2 bounce and then we should get 3 of 3. That leg should at least equal wave 1. Of course we throw the Fed wild card in there and anything can happen, so it’s a bet I’m personally not going to make. My only comment regarding them is “talk is cheap.”

And to those going around saying that it’s not wise to fight the Fed, my comment to them is that it is the Fed who is responsible for creating and worsening the mess we are in. Their ACTIONS are making the problems worse, and thus the more “actions” they take, the worse the outcome will be.

For example, here’s a Point & Figure chart showing the bullish target for 10 year Treasuries:

Note that the bullish price objective says 71.0… as in 7.1%!!! Yes, this is what fixed rate mortgages are tied to and remember that mortgage rates are usually up to 2% higher than this rate. Can you image what will happen to housing if that target is achieved in this environment? Ben better hope not. But the odds of that happening go UP the more he tries to buy rates down – Bernanke, the student of the Great Depression, is causing the second one.

And yesterday’s action in equities produced new bearish targets on the P&F figures for both the Dow and the S&P:

S&P Bearish target = 850:

DOW Bearish target = 7,800

Of course the P&F targets are just computer generated pattern targets, but I would not bet against them being achieved – at a minimum, but remember that nothing moves in a straight line, there are no “direct” clearances in the markets.

The short term stochastics are now oversold, of course, as is the daily fast. We are also already close to the bottom Bollinger bands which are now beginning to turn downward.

So far this morning we have failed to rise back above the 50 and 200dma’s which are now collocated at the 900 SPX level and about to produce a bullish "holy" cross. It won’t be bullish, however, if prices remain beneath the 900 level, instead it will produce a throw-over.

Bottom line – look for a wave 2 bounce that should be followed by 3 of 3 unless the Fed does something even more stupid tomorrow which can result in almost anything. Of course they must “do something” when all the markets really ever wanted was for our government to just let it be…

Monday, June 22, 2009

Now that Dylan is outside of CNBS, he is asking questions like someone who is NOT sponsored by the central banks. How refreshing to hear some hard hitting and pertinent questions that can be considered true investigative reporting.

THANK YOU DYLAN, please keep it up and good luck with your new show! May you find sponsors who will stick with you, my hunch is that it won't last long if you keep asking questions like that! Not to worry, you can always start a blog and beg your readers to click on your ads, errr... I mean visit your "sponsors!" LOL!

While Elliott Wave is admittedly NOT my strong hand, Yves Lamoureux has written an interesting article that offers a different bear market count from those I’ve seen and been working with.

McHugh is labeling the rally off the 666 low as wave B up (the eye of the storm) with wave A having finished at that low in March. He believes that wave C will follow and that it will be devastating. I agree completely with that sentiment but am not certain of the count, not that it matters much in the short term, but in the longer term it will matter, so let’s take a look...

Speaking of the short term, this trumped up rally has been very difficult to count on the way up – almost unnatural, because that’s exactly what it was. But the recent decline that began on June 11th is very easy to count… you can see in the 10 minute SPX chart below that we had 5 clean waves down in a neat channel (wave 1), we broke that channel up with a smaller corrective channel (wave 2), and we have now begun wave 3:

That’s the short term…

Now going to the long term, I’ll let you read Yves’ thoughts and pay attention to how he has his long term chart labeled…

The obvious sometimes stands clearly. You face it and prepare for the outcome. We stand at a juncture that would have you believe in the coming outcome. But wait - lets take a quick journey into what seems to dominate my observations and you can determine the best course of action for yourself.

We have continually watched monetary aggregates and they are contracting. You will notice from the M2 chart divided by the monetary base a drop. This is significant and comparable to the 1930’s. The complaint would be the same as to banks sitting on a monstruous pile of cash but not lending it. The tradional behavior of the consumer to start saving instead of buying also compounds this problem. M2 decceleration cannot lead to inflation. The Fed cannot force the banks to lend and monetizing bonds will continue to aggravate the only asset that people have en masse their household. An inflationary outcome is tantamount to financial hara kiri. The bonds vigilante will strike hard and mortgages will keep rising, killing any stabilization that is in process. The impact of the recent rates hike will be felt in the stock market in the next few months.

Given the choice to protect housing or stocks, the Fed will surely realise to go the real estate way. A liquidity trap as such is deflationary. The money base also doubled in Japan after the stock bubble collapsed and to no avail the economy kept contracting.

Are bonds finishing the C wave or are they in complete fast and furious 3rd wave? This is the question we did pose in the article May 2nd. If the Fed gets it, they stop buying and monetizing the debt then it is a C wave.

On the next graph, the spread of the discount rate to the rate of the long Treasury has never been so wide. If you had bought on a few occasions where the spread was wide as 4% between both, the resulting trade would be a winning one on most occasions.

Unless you are suggesting the Fed raises rates by about 2% over the next 24 months then buying treasuries would not be a great investment. On the other hand if you believe that there is little room for the Fed to move, then long bonds are an even better bet. There is a fine line that the Fed is walking and a slight tilt of strategy can undo with great damage what they have built so far. Mild deflation is the preferred outcome and necessary one.

We have sold all of our inflation hedges that we owned for the last 2 months. We are turning to deflation trades or unwind. Possibly the greatest misunderstanding in the lift off of all markets singularly correlated is a function of investment demand and not real changes from supply/demand. Realise that all markets cannot possibly beat to the same rhythm for a prolonged time. Those correlations will unwind and support real bull market where there is cause for that.

We have held for a while our position of a rare 4th wave at this juncture. The last move up does look impulsive but is part of an ABC ABC 12345 pattern. The pattern still holds to the rules established. The implication is for a 5th finishing wave that will complete a bigger A wave down. The general area of the March low is the objective. It could be truncated or extended. I will be looking for an equivalent 3 standard deviation in sentiment measures to call the bottom if that was to occur. We are looking to short the market on the wave 2 of 5 and not before since window dressing could still be part of present activity.

The bull market ate too many greenshoots and died of natural causes. Often bull markets roll over from their own weight.

Yves Lamoureux, Investment Advisor, Blackmont Capital Inc.

The opinions contained in this report are those of the author and are not necessarily those of Blackmont Capital Inc.. Every effort has been made to ensure that the contents of this document have been compiled or derived from sources believed to be reliable and contains information and opinions which are accurate and complete. However, neither the author nor BCI makes any representation or warranty, expressed or implied, in respect thereof, or takes any responsibility for any errors or omissions which may be contained herein or accepts any liability whatsoever for any loss arising from any use of or reliance on this report or its contents. BCI is an independently owned subsidiary of CI Financial. CI Financial is a Canadian owned diversified wealth management firm, publicly traded on the TSX under the symbol CIX. Blackmont Capital Inc. is a member of CIPF and IIROC.

While I completely agree with Yves’ fundamental and psychological analysis (he specializes in market psychology), I explained to Yves that I was not sure of the count he was using as his wave B has a much lower low than his wave A… he explained that a similar event happened in Japan when the Nikkei collapsed and that, “Wave B going lower than wave A is a necessary part of the psychology to get even more shorting from bearish participants to wipe them out on the subsequent C rally. It also confirms to the main crowd to not sell in the drop as we have just evidenced super strong rally (the market always come back strong psychosis). You then get most bullish people to not sell in the next drop (because they have learned the lesson to stay still) and to most bearish players to second guest themselves or lick their wounds.”

In this way both the bears and the bulls are suckered into their own mass psychosis. The awakening will be particularly RUDE in my own opinion.

Yves believes that this recent rally was a part of wave 4, part of a running or expanded flat (a fairly rare formation). Here is a chart of what a running flat looks like in both a bull and bear market:

So, this is one possibility to be on the lookout for. Either McHugh’s count or the one presented by Yves will look the same initially. In the short run I believe we are at a minimum in wave b of a larger wave B. We won’t know which is the correct count until we look at it in hindsight, but for now the key level to watch is 880. A break beneath that level will put a larger correction on the table and we’ll look at the situation further if or when that occurs.

Thanks to Yves for sharing his work with us!

And as Yves points out, it is necessary to have enough people believe the worst is behind – Gotta love ‘em, like Alzheimer’s disease, the Economic Mass Psychosis numbs their little brains and leaves the market vulnerable to more declines – Hey, don’t stop believing!

Futures are down significantly this morning with the /ES falling to the significant 903 level and so far finding support there. Here’s the overnight action on the DOW and S&P:

Friday’s action did not satisfy the very small movement in the McClelland Oscillator on Thursday, so I expect a large move today. If we open here, that large movement may already be close to satisfied.

Below is a 10 day chart of the SPX. Note that Friday’s action remained within the confines of the small corrective up channel. That channel has lasted 3 days now, the same length of time as the larger down channel. Note that the 10 minute stochastic is overbought, the 30 and 60 minute are in neutral range:

On that chart, I like the Elliot Wave count for the first time in months. The down move is clearly 5 waves and the corrective move up looks to me like a complete abc that started wave 3 down intraday on Friday.

Now that we have broken beneath that channel, I would expect wave 3 to at least equal wave 1 which was worth about 50 points. That would place wave 3 in the very strong support area around 880. 903 is the first area of support. Once 903 falls then prices are very likely to head to the next major support area which again is around 880. That area is the key… if it is broken then a larger correction than most people are expecting will be taking place.

Commodities are down sharply. That is not a good sign for the bulls as commodities and technology led this rally after the manipulation in the financials (who are also manipulating oil and other commodities). Without the leadership of commodities, further rally becomes way less likely. And beyond speculation, why would they continue to rally? Demand is certainly not strong, in fact it has fallen off the proverbial cliff.

This weekend we learned that the Fed is going to be a buyer at today’s bond auctions, but they don’t say how much and once again we return to the fantasy of QE (printing/buying our own debt) but now without any transparency whatsoever, not that there was ever any real transparency anyway. It is my belief that the $300 billion announced by Bernanke (and supposedly only $150 billion spent so far) is just the tip of the iceberg for the amount of QE that has happened in reality. Of course they don’t want their books to be audited by an independent agency, it likely won’t happen, and we’ve all seen the video of how effective and competent the internal auditor is (not).

So, the biggest weekly auction amount in history is scheduled for this week and that is the real news. More debt than there are buyers for and the Fed admits it must continue to buy its own debt. That is DEFAULT. When you can no longer finance your debts, you have failed – as in BANKRUPT!

And speaking of bankrupt, California is a disaster that is not waiting to happen, it is imploding NOW. Martin Weiss wrote a good article on California and I suggest everyone read it. With an economy larger than Russia or Canada, its collapse is not insignificant, quite the contrary, it will have a very profound effect indeed. Please take the time to read Weiss’s article - California Collapsing.

Despite some intermittent very nasty weather, I had a fun weekend riding my motorcycle all over eastern Washington and Oregon. One thing that is becoming clear to me though, is that the pace of economic and “other” events throughout the world is quickening as catching up on events and economic news was very difficult. I could not possibly cover all the important issues that I would like to cover. While that’s always been true, I do not believe that there has ever been so many events and things to consider as there are now. No, there are far to many balls and manipulations in the air. Some of those balls are going to start falling soon. I’ll plug Zero Hedge for having some very good articles this weekend, one that I think is very intersting is about the new rating agencies and how the government is using them to prop up the ratings on TARP collateral. While these new agencies claim to have no conflict of interests, the facts say otherwise as JPM is a large stake holder in one of them - Zero Hedge – Conflicts of Interest…

There is no economic data out today, but there is a bunch later in the week including the results of the FOMC meeting on Wednesday so it should be another exciting one.

I’ll be moving to a new home this week, so I will be busy packing and making arrangements for that early this week and will make the physical move on Thursday. So you can expect that from Thursday through the weekend I’ll be focusing on that, obviously, and I will be completely offline at the end of the week.

In regards to the stockmarket, well, I think it’s ultimately in trouble…